Small businesses are vital cogs of the economy and helps propel economic growth. The existence, as well as endurance of your business endeavor, would depend largely on the willingness of customers to spend. Thus, it is important to know the factors affecting consumer spending and how you can capitalize when it’s on the rise.
Consumer spending is a driving force
If consumer spending is important to small businesses, it is equally important to the government. A clear example is a fuss over the celebration of Thanksgiving Day in the U.S. Several American Presidents with the aid of Congress issued proclamations and resolutions to set an exact date.
On December 26, 1941, U.S. President Franklin D. Roosevelt finally signed into law the Federal Thanksgiving Day which officially fixed the date on the fourth Thursday in November. The move was purely economic. A shortened-holiday season would have hindered the country’s economic recovery then.
Clearly, small businesses are the beneficiaries when consumers have the buying power. Any downturn in consumer spending can impact on small businesses and the entire economy. Small business owners should seize the moment when consumer spending is rising. It will solve their central problem which is generating sales.
The factors affecting consumer spending
- Consumer demand
Entrepreneurs are fortunate these days because there is an avenue to address the funding requirements of small businesses. However, business owners are not likely to maximize utilization of the business loan facility when consumer demand is weak.
- Job security and real wages
On a monthly basis, the U.S. government releases important economic data. Small business owners should follow these updates to help them plan better. Jobs report, real wage growth, and consumer sentiment among others would somehow indicate how consumers would likely to spend. You can better prepare for either a good or lean month.
- Disposable Income
In relation to job security, consumers are likely to spend more because there is the security of job tenure. On the other hand, rising wages translate to a higher net disposable income.
Disposable income, net of taxes, is the most important factor that boosts consumer demand. As wages increase, it creates a spending cycle. With the added funds, consumers have the capacity to buy the things they need and want.
For small businesses, it is interesting to note that the younger and lower-income consumers are the ones driving spending growth. Knowing the demographics of your customer base is crucial. You can align your business goals and target the consumers that patronize small businesses.
- Household debts
Household debt is one of the major reasons why consumers curtail spending. There is a pressing need to prioritize debt payments such as accumulated credit card balances, home mortgage, auto loans, and student loans among others. If the level of debt is overwhelming, you can expect customers to be frugal.
Capitalizing on rising consumer spending
The biggest opportunity for small businesses to increase sales is when consumer spending is on the rise. Except perhaps for household debts, all other factors highlighted here have been negated. Consumers will demand more products and services so preparations are in order for business operators.
The scenario of rising consumer spending might come few and far between. But once it is present, may hay while the sun shines. Revisit your pricing structure and remain price-competitive. But more than anything else build your financial muscle. As a small business owner, you need fast business funding for working capital.
PDM Capital can source reliable lending and funding partners for you to ensure business continuity. Instead of borrowing, you can also consider availing of the merchant cash advance facility. This option will allow you the flexibility to cope with the expected increased business activity. Visit https://www.pdmcapital.com/ now and see how your small business can thrive regardless of the business environment.
Links: